Opinion: Royal commission into banks needed following Commonwealth Bank scanda

TOO big to fail should not mean too big to be held to account. Imagine an institution with 16.6 million customers, 55,000 employees, assets of close to $1 trillion, and profits of $9.9 billion.

Then imagine this same institution mired in successive financial scandals over a period of years, scandals that have cost it hundreds of millions of dollars in compensation and seen an ongoing investigation by the Australian Securities and Investments Commission over a failure to monitor possible money laundering activities.

Then consider the fact that this institution is part of a wider sector that is no stranger to controversy and dogged by accusations of market manipulation and sharp practice; a sector that ranks low on the public trust scale.

We are talking, of course, about the Commonwealth Bank, which was yesterday trying to hose down speculation that it might face investigation by overseas regulators over alleged failures in its anti-money laundering compliance.

This is the bank that a few years ago set aside roughly $260 million as compensation for clients to whom it lent money to invest in the failed Storm Financial. It is also disbursing another $105 million in compensation to clients of its financial planning division.

It was not the only bank to get caught up in this mess, with the corporate watchdog ruling that some 200,000 clients with various banks had been billed for advice that was never provided.

I was sceptical about early calls for a banking royal commission, but they have had enough time and the results of a sector which has at times taken a cavalier approach are there to see.

Add into this other banking industry malfeasance, such as tipping clients into inappropriate high-risk (and high-fee) products, and you can understand why Prime Minister Malcolm Turnbull last year warned the banks they risked eroding public trust.

“The singular pursuit of an extra dollar of profit at the expense of those values is not simply wrong, it places at risk the whole social licence, the good name and reputation upon which great institutions depend,” Mr Turnbull said at the time.

Now consider that the Federal Government established a $46 million royal commission into the union movement – which has a total membership of about 2 million and is not exactly a sector the average Australian deals with on a daily basis – which, at the end of the day, resulted in one criminal conviction.

I was sceptical about early calls for a banking royal commission, believing that the industry, already on notice, should be given the chance to get its house in order.

Quite simply, they have now had enough time and, year after year, the results of a sector that has, at times, taken a cavalier approach to both governance and its customers’ interests are there to see.

The banks may argue such an exercise will erode public trust and damage their reputation, but the opposite is true. A full-blown inquiry may be the only way to restore that trust.